The Complete Office 365 and Microsoft 365 Licensing Comparison

"What did I just buy?"

If you have ever asked yourself this question after purchasing Microsoft 365 licenses, you are not alone. Microsoft's licensing structure is one of the most complex in the entire technology industry. With overlapping product names, bundled services that change annually, and a dizzying array of add-ons, it is no wonder that IT leaders and business owners alike feel overwhelmed.

The confusion starts with the names themselves: Office 365 and Microsoft 365 sound nearly identical, yet they represent fundamentally different product bundles. Office 365 traditionally referred to the cloud-based productivity suite (Word, Excel, PowerPoint, Outlook, Teams), while Microsoft 365 wraps those same apps together with Windows licensing, Enterprise Mobility + Security (EMS), and advanced compliance tools.

In this guide, we break down the most common licensing plans side by side so you can make an informed decision about which plan is right for your organization.

Microsoft 365 Licensing Plans at a Glance

The table below compares the key features included in each major licensing tier. Use the green checkmarks and gray dashes to quickly identify which capabilities are included in each plan.

Which Microsoft 365 licensing plan should I buy?

The answer depends entirely on your organization's size, industry, security requirements, and how your employees work. There is no one-size-fits-all solution, which is precisely why Microsoft offers so many tiers. Below, we walk through each plan and the type of organization it best serves.

Microsoft 365 F1 for Frontline Workers

At just $2.25 per user per month, Microsoft 365 F1 is designed for frontline and task-based workers who need access to communication and collaboration tools but do not require a full desktop Office suite or dedicated mailbox. Think retail associates, factory floor workers, and field service technicians.

F1 includes web and mobile versions of Office apps, Microsoft Teams, SharePoint, limited OneDrive storage (2GB), and Azure AD P1 for identity management. It also includes Microsoft Intune for device management, making it ideal for organizations deploying shared or company-owned devices to frontline staff.

What F1 does not include is Exchange mailboxes, desktop Office apps, or any of the advanced security features like Defender for Endpoint. If your frontline workers need email, you will need to step up to F3 or add Exchange Online as a standalone add-on.

Microsoft 365 F3 vs. Office 365 F1

This is where the naming gets especially confusing. The legacy "Office 365 F1" plan was rebranded and its features were split across Microsoft 365 F1 and F3. Today, Microsoft 365 F3 at $8.00 per user per month picks up where F1 leaves off by adding a 2GB Exchange kiosk mailbox, Windows 10/11 Enterprise licensing, and additional compliance features.

F3 is the right choice for frontline workers who need a basic mailbox for company communications, shift scheduling through Teams, and access to organizational intranets via SharePoint. The kiosk mailbox is limited to 2GB and does not support desktop Outlook, but it covers the basics for employees who primarily communicate through Teams and need occasional email access.

The key differentiator between F1 and F3 is the mailbox and Windows licensing. If your frontline workers use shared Windows devices and need email access, F3 is the way to go. If they only use mobile devices or shared tablets, F1 may be sufficient.

Microsoft 365 Business Premium with Azure AD P2

For organizations with fewer than 300 employees, Microsoft 365 Business Premium at $22.00 per user per month is often the sweet spot. It includes the full desktop Office suite, 50GB Exchange mailboxes, 1TB OneDrive storage, Microsoft Teams, SharePoint, Intune, Azure AD P1, Defender for Endpoint Plan 1, and Defender for Office 365.

Business Premium is our most frequently recommended plan for small and mid-sized businesses because it packs an impressive amount of security and productivity into a single license. The inclusion of Defender for Endpoint P1 and Defender for Office 365 means your organization gets enterprise-grade threat protection out of the box, without needing to purchase separate security add-ons.

The one notable gap in Business Premium is Azure AD P2, which adds Privileged Identity Management (PIM) and risk-based Conditional Access. For organizations that need these capabilities, Azure AD P2 can be added as a standalone license for approximately $9.00 per user per month. We recommend this combination for any business handling sensitive data or operating in a regulated industry.

Important limitation: Business Premium has a hard cap of 300 users. Once your organization exceeds that threshold, you must migrate to an Enterprise (E-series) plan.

Microsoft 365 E3 with E5 Security

Microsoft 365 E3 at $36.00 per user per month is the enterprise workhorse. It includes everything in Business Premium plus unlimited archiving, advanced compliance tools, Windows Autopilot, and enhanced information protection. E3 removes the 300-user cap and is designed for organizations that need robust governance, compliance, and device management at scale.

However, E3 on its own has a notable security gap: it does not include Defender for Office 365, Defender for Endpoint P2, Azure AD P2, or Microsoft Sentinel. Many organizations pair E3 with the Microsoft 365 E5 Security add-on (approximately $12.00 per user per month) to fill this gap, bringing the total to around $48.00 per user per month.

The E3 + E5 Security combination is our recommended configuration for security-focused enterprises that need the full Defender suite, identity protection, and cloud-native SIEM capabilities without paying for the full E5 license. This approach gives you:

• Defender for Endpoint P2 with advanced threat hunting
• Defender for Office 365 P2 with automated investigation and response
• Defender for Identity for on-premises Active Directory protection
• Azure AD P2 with Privileged Identity Management
• Defender for Cloud Apps (formerly MCAS)

Microsoft 365 E5 Licensing

At $57.00 per user per month, Microsoft 365 E5 is the top-tier license that includes absolutely everything. In addition to all E3 features and E5 Security capabilities, E5 adds the Teams Phone System with Audio Conferencing, Power BI Pro, and advanced compliance features like Advanced eDiscovery and Communication Compliance.

E5 is best suited for large enterprises that want a single, all-inclusive license and are willing to pay the premium to avoid managing multiple add-ons. The inclusion of the Phone System is particularly valuable for organizations looking to replace traditional PBX systems with a cloud-based telephony solution through Microsoft Teams.

E5 also includes Microsoft Sentinel integration credits and advanced analytics through Microsoft Viva, making it the go-to choice for organizations that want maximum visibility into their security posture and employee experience.

That said, not every organization needs E5. If you do not require the Phone System or the most advanced compliance tools, the E3 + E5 Security combination provides nearly identical security capabilities at a lower per-user cost.

Our Recommendation

Microsoft licensing is not something you set and forget. As your organization grows, your licensing strategy should evolve with it. The wrong licensing mix can leave you overpaying for features you do not use or, worse, exposed to security risks because critical protections were not included in your plan.

We strongly recommend working with a Microsoft Gold Partner like Infused Innovations to audit your current licensing, identify gaps, and build a roadmap that optimizes both cost and security. Our team has helped organizations of all sizes navigate these decisions, from startups selecting their first Business Premium licenses to enterprises migrating thousands of users from E3 to E5.

If you are unsure which plan is right for your organization, reach out to our team for a complimentary licensing consultation. We will help you make sense of the complexity so you can focus on running your business.